Pleasanton must trim employee benefits or face citizens’ initiative, council warned

Thank you thank you THANK YOU Bart Hughes! You have laid out for the city council the facts in a way that most of us could only hope to do. If they fail to see the seriousness of these liabilities then hand me a petition, I will sign it and I will circulate it. Overly generous benefits, not one dime of which comes from the employees, MUST go. And they must go with the very next contract negotiation. So city council — can any of you make the hard choices that need to be made now that your fiscal folly has been made a matter of public record?

Bart, you are so right. i will sign on to this movement. Fialho needs to be the first to go.

The Fiscally Responsible council who are endorsed by this paper are the “Emperors New Clothes”, pretend they are fiscally responsible.

Kay Ayala is the only person who has tried to bring this fiscal time bomb to light, we all know what that got her. Staff will discredit anyone who tries to warn our community.

Thank you Bart, for bringing this to our eyes. My Father, just worked on a reform in Menlo PArk, for the exact same reason. They just got this passed. I would be happy to find out more information about the process that it took, if need be.

Our City , prides itself on being fiscally responsible and cutting edge. This needs to be top priority for 2011!

To get what many city employees get – e.g., full pension at age 55; someone in the private sector would need a $2M annuity – even higher at today’s low interest rates. Nobody in the private sector gets that unless they are C-level; or manage to save that up from their own private business.

And why do city employees deserve this? Many of them do very little to no real work – pushing paper around and hiring “consultants” to do any real work. And they get paid $150K per year to boot. Taxpayors are sick of this – pensions are an unfunded mandate that will bankrupt all of California so a select elitist class of workers can benefit while everyone else suffers.

First of all, I don’t live in Laguna Oaks. And why is this relevant to the discussion?

Second, as of this date it is not true that all employees contribute to their pensions. Firemen are the first to do it and only started doing so last month. They are contributing 2% of their salary and the city is picking up the remaining 7.4% of the employee contribution portion and the 25.2% of the employer portion. City – 32.6%, employee 2% – some sharing of the burden …

Keep in mind that the entitlement plan was only supposed to cost citizens approximately $26M these past eight years. Instead it has cost us $97M – nearly 4x the original estimate. This has been a known issue all the way back to 2003/4 (well before the financial crisis) and the city has stalled ever since then to avoid meaningful reform. They are still stalling today. Speak with them and they will say it’s not that big of a problem and they have it under control. In the meantime, taxpayers shell out $17M/year (compared to $0.6M in 2002). Entitlements now eat up 21% of our general budget compared to less than 1% in 2002.

The facts speak for themselves – the city does not have this under control.

Lastly, I have been in contact with the Menlo Park citizens group and am currently discussing/thinking through an initiative approach of the City Council does not step up and do what is right on behalf of all Pleasanton citizens. They have had eight years to deal with this issue, more than enough time. I lament the “us vs. them” divide that is being created here, but remember it is the irresponsible behavior of the City Council, city management and union leaders that have created this issue.

To Bart Hughes – you are technically correct in that the contributions from the rank and file to PERS has not started as of today. They are starting on Jan 1. I wanted to clear that up.

There is absolutely no misinformation in my posts – my information comes directly from the city. I state very clearly where I make assumptions. The vast majority of my facts/figures come directly from the city.

It will be interesting to see the pension contribution rates come January. If employees aren’t picking up 100% of their portion at a minimum, the city is once again trying to pull a fast one on the citizens of Pleasanton. Person in the Know – given you have inside information, what will the new contribution rates be?

As of last week, the city is still estimating that 2010/11 entitlement expenditures will be larger than this year. And I could go on and on regarding how city governments (including Pleasanton) are currently down-playing the significant increases that are coming.

Why is it that year after year, the citizen’s tab for this poorly thought out retirement plan increases and only now after eight years employees are kicking in?

Bart

You seem to have a good grasp of the issues. What isn’t mentioned on this board is that the pension system is probably only about 60% funded, and even that is based a discount rate (expected rate of return) of 7.75%. Calpers averaged 3.3% over the past decade. Lowering the discount rate will increase the unfunded liability even further and also increase the city’s “employer” contribution rate. That is going to happen in 2011. Increased longevity will also add 1.5-2% to the “employer” cost. Calpers is using a smoothing policy to help reduce the sticker shock of the post market crash rate increase that begins showing up on city bills beginning July 1, 2011 (probably 4-7 percentage points). The increases are in annual steps but by 2015-16, the “employer” cost will be above 50% of payroll. So when you include the “employee” contribution that the city also pays you can expect to be paying 60% of salary toward the safety employees pension.

When the city/taxpayers “pick-up” the employee contribution rate the employee is allowed to count that value toward their highest years earnings, which is the basis of the pension calculation. So, if the employee earned 100k and the city paid the employees share of the 9% contribution, the employee, under calpers rules, would add that 9K to annual salary. Assuming 90%, the pension calculation becomes 109K * 90%, or $98,100 in the first year.

It is a big problem.

Let me be clear, I value to services/contributions of city employees. I don’t have an opinion one way or the other regarding their productivity level. I’ll leave that to others.

I’m focused on Pleasanton’s entitlement plan that has grown into something that wasn’t intended and is crowding out other city services. We (current and future citizens, future employees, etc.) will all be poorer if we don’t get a handle on this and effect change now.

Arnold – you bring up excellent points. I was alluding to the coming increases due to poor city assumptions in my previous posts. Pension cost issues are only going to get worse and crowd out more of the annual budget.

But my understanding is that pension plan is currently 78% funded but it is the retirement medical fund that is only 62% funded – a big issue in and of itself.

Keep in mind that the way the city has maintained a reasonable pension funding level is by starving the rest of the general funds budget. Remember entitlement costs were less than 1% of the general funds budget in 2002, now they represent 21%. Average Pleasanton citizens are poorer for the approach city management has taken to date to address the issue.

IF our ‘representatives’ were ‘negotiating’ on ‘our behalf’ last month, why didn’t we know ? ? There were several PW threads in the last several months. Why wasn’t that part of the discussion? PW would just block or stop the discussion. This never transparent council keeps it secret until the night of the slam-dunk rubber stamp vote of approval. I recall the secret “approval’ vote was at MIDNIGHT ! ! That year the Mayor ‘thanked’ our wimpy little female ‘negotiator’ for having it all go thru so smoothly and friendly and fast…and were going to have the worker actually pay several pennies on the dollar contribution for med CO-PAY.
First,why should it be ‘friendly’. We need a fighter that will protect us, the EMPLOYER ! ! WHY wasn’t this process TRANSPARENT? I remember McGovern TALKING transparency several times in recent years, but we didn’t hear a peep out of her. We have NOBODY defending us. We need to start a Tri-Valley taxpayers group, like they have in walnut creek/cococounty. Ya think union thugs would track us down….and violate the law ? Let’s go ! We have no choice, since our ‘repressentatives’ won’t. (represent us, that is).

Bart

I’m going to stick with my 60% number. The number you are using is probably just last years percentage, and doesn’t include the market losses of 2008-09. Calpers uses a one year lag for computing state rates, and a 2 year lag for cities, counties, and special districts. The stock market losses of the great recession aren’t included in the number you are using, but are reflected in the 2011-12 numbers (beginning July 1, 2011).

Calpers has just released their Actuarial Valuation reports for 2011-12. I imagine you can go to city hall for a copy. Hopefully they don’t make you go the route of submitting a Public Information Act request. If you’re interested you can view Fullertons report to get an idea of what Pleasanton is looking at (numbers will be different but the percentages and general information are probably similar). It was posted on “The Friends of Fullerton” website. To view the Calpers report go to the pensiontsunami.com website. From their go to the fourth article from the top and click the link that begins with “Kaboom”. On that page you will see the Calpers report just beneath the kid in the toy car. Go to page 15 of the report (21 in your browser) and you will see “funding history”.

Fullertons Market Value of Assetts(MVA) was 89.7% on 6/30/08. On 6/30/09, the last reported data because of the two year lag I mentioned, and the information contained in the just released report, is 60.9%. Calpers is now reflecting the market losses of two years ago. On page 1 you will see the Fullerton “employer” contribution rate of 30.2% beginning in July 2011. It is projected to increase to 32.2% the following year, and to 37.7% the year after (2013). That isn’t good but it gets even worse when you consider they pay 24.8% today.

I think you will find the report interesting, but most people probably wont.

I find it is astonishing that nobody has demanded that PUBLIC-UNION member excuse herself when these public-union votes & discussion taked place. That is an outrage. They all sympathize, and contribute to campaigns as a single unit. ….aside from the buying elections of public officials, like themselves.

Employer,

Who is the public union official you are speaking of?

Glad to see it on a larger scale. We tried to negotiate with the union, but they refused to give up 100% paid healthcare benefits. So they were replaced as workers. Why be more sympathetic to them, than the city workers. The problem is faced by communities and employers alike. Give aways are going away.

Thank you, Bart Hughes.

“b”, if you check into the facts you’ll find that many of your underlying assumptions just aren’t true in this case. Also, please keep in mind that many employees started work with very different and lower entitlement benefits. Entitlement benefits are beginning to come down across the board in other areas because it is a simple mathematical fact that current schemes aren’t sustainable.

Please remember that one of my intents with all this is to get those employees who will benefit the most from the current program to contribute more. I’m doing this partly to protect the future for future new Pleasanton employees. If the city runs out of money paying the retirement benefits for past/current employees, there will be less for future employees and we all will be poorer for that.

So if you truly care about the quality of future city employees, you will fight along side me.

b

How does a monopoly service provider (city services/employees) equate to a free market? Who are the city employees competing with? And how is it that union contract language guarantees raises and includes provisions to increase those raises if a salary survey shows some positions below the mean – with no provisions to decrease the wages that are above the mean? How is that fair to the consumers that are paying for these services?

Bart,

Thank you. I will be contacting you. I appreciate you spearheading this (want to take on the teacher’s union next? )

Arnold, et al

It is a free market because these employees are free to go work for anyone else they choose. Referring to them as “monopoly” with respect to employment would imply that they are the only employer in the area, which is most certainly not true. Why would people come work for the City of Pleasanton if they can get a job with better pay and benefits with other public or private employers?

I assume you’ve looked for a job at least once in your life, if not a few times. Were pay and benefits not a factor in your decision about who to work for? Why wouldn’t it be a factor for the employees of the City of Pleasanton?

In the Bay Area, $125k-150k is not an unusual level of pay for a mid- to senior-level professional or manager. Many private employers also offer very generous benefits, stock options, etc. How are we going to attract high-quality people to run our city if we don’t offer salaries and benefits that are competitive with other employers in the area?

I urge everyone who is concerned about the issue I raise to look at the facts. Then form your opinion based on knowledge.

Fact, the generous entitlements that were voted in during the 1999-2002 time frame (based on SB400) were not supposed to cost taxpayers extra (or in the case of Pleasanton much extra) due to the expected increases in the stock market. Pleasanton published in 2002 what the cost of the enhanced program was supposed to be.

Fact, reality turned out much different and the entitlement programs are putting tremendous financial pressure on all levels of government. From 2002 to 2010, Pleasanton’s program has cost nearly 4x the original estimate. Clearly, the original plan was a mistake.

Fact, Pleasanton taxpayers have picked up 100% of the cost overruns of this mistake. Employees have picked up 0% to date (except for the small portion that the fire department started contributing last month).

Fact, the City Council and City management has had multiple opportunities these past eight years to fix the problem is a way that is fair and equitable to both employees and taxpayers. Their actions/lack of action has ensured that taxpayers continue to pay for the mistake. Entitlement costs have increased from 1% of the General Funds budget in 2002 to 21% of the General Funds budget today.

Fact, I don’t represent an isolated concern nor minority group. As evidence, there were 10 entitlement reform bills on bay area ballots this past election. Nine of those won – many by very large margins. There is a growing awareness and concern of the significant public employee entitlements issue. Check out http://www.pensiontsunami.com.

Fact, you can’t look at public employee salaries alone to conduct an apples-to-apples comparison to private industry. The pension component is a huge factor. Here is an example. Let’s assume someone finishes their public service career at 55 with a final salary of $150K and they worked 30 years. Essentially they were earning an extra $122K/year during that time (imputed annual pension amount for the next 27 years). You will not find the equivalent of this in private sector, and I haven’t even discussed the medical benefits. There seems to be a misconception with public employees that most/all private employees receive large bonuses, stock options and 401K matches. This is simply not the case. And for those that do, much of this is eliminated during economically challenging times. Public employees do not face this risk/reward paradigm.

Fact, Pleasanton attracted quality employees prior to the balloon in entitlements benefits. With the downsizing of public employee benefits that is occurring across the country and across CA, I strongly suspect Pleasanton will be a compelling employer post the right-sizing of benefits.

I am not out to get anyone. Again, I value the services that city employees provide to our community. However, I am not supportive of a program that will continue to starve the city. We need to find a new approach based on sound financial assumptions that is fair to all stakeholders – current/future residents and current/future employees.

I welcome the debate from others as I always try to learn something from the other side. But please keep in mind that framing the discussion with facts helps everyone and attacking the messenger helps no one.

There seem to be conspiracies lurking everywhere these days.

The reality of the situation is that the City of Pleasanton is merely trying to address the realities of the labor market in one of the most expensive regions of the country. Nothing more, nothing less.

As an employee of who works for a private-sector corporation, I would not accept a job that did not have the level of salary, benefits, 401k match, stock options, etc. you describe. I would hope that the City of Pleasanton would offer similiarly generous benefits in order to attract similiarly qualified people to run our city.

Bart, to force the City to implement these kinds of restrictions, without also imposing them on other regional public and private employers, would simply be a disservice to the residents of our city who depend on these city services.

For those who say that we cannot attract quality employees — get a grip! Consider the unemployment numbers right now and tell me that NO ONE would work for this city for a reasonable salary and pension. Would they work here and leave when the labor market is better? Maybe, and that would be a good thing. Their pension obligation would go away with their departure from the city.
For “b” — “I would not accept a job that did not have the level of salary, benefits, 401k match, stock options, etc. you describe. ” Yeah, sure. Your ego speaks loudly now but I’ll bet if your high pay and benefits evaporated you would not be so proud as to demand what you claim that you need in order to accept work.
I say cut the pay and all of the benefits and watch for the exodus from city employment. And watch and wait and watch and wait some more. Not gonna happen in this economy. Now is the time to make those cuts, we have the upper hand and the council better use it.

Bart, I am well aware of what compensation in the Bay Area is.

I know what I earn, I know what I pay my employees, I know what other companies in the Bay Area have offered me and family/friends. Private industry salaries/benefits are easily searchable on glassdoor.com, and public salaries/benefits are regularly reported in the newspaper and online.

Based on all of the above, I see no evidence that employees of the City of Pleasanton are overpaid relative to their other employment options, nor do I see any evidence that the City of Pleasanton has done anything wrong in their attempts to attract high-quality employees.

I also see plenty of evidence that the local job market is generally more competitive than you seem to think. There is a lot of demand for professional/skilled workers in a lot of sectors right now–as evidenced by the difficulty I’m having filling some positions, and the numerous people I know who are being actively recruited by multiple employers now.

I don’t dispute the numbers you’ve reported. I understand that they may sound large to you. But that’s what it costs to employee people and run a professional organization in this expensive region. Public employers tend to offer more generous retirement benefits, while private employers tend to offer more generous bonuses, stock options, etc. But the overall costs of employing individual people tends to run about the same.

Your initiative is a great disservice to the people of Pleasanton who depend on City services and want them delivered by well-qualified employees.

“b” – Are you going to address the fundamental question I posed on whether it is OK to continue to allow an unintended, cost out-of-control public entitlement system to crowd out the rest of Pleasanton’s budget?

Also, I would welcome industry examples from you of companies that guarantee multi-million dollar retirement packages for most if not all benefited employees.

Bart,

I did address your question, by saying that I don’t see the crisis or the conspiracy. I just fundamentally disagree with your assertion that anything is out-of-control.

I think our city leaders have done a reasonable job of managing our city’s finances in a difficult fiscal environment, while creating market-responsive compensation packages that allow them to recruit great people to run our city.

b – Ok, since you don’t be believe nearly 4x the cost estimate (and growing) is out of control, what is your threshold? 5x, 6x …10x?

Also if 21% of the General Fund is not excessive, what is? 25%, 30% …50%?

Are you sure you are being unbiased about this, or you don’t have a personal/family angle to this?

Remember, Pleasanton was able to attract plenty of qualified candidates prior to the ballooning of the entitlements program. And this was during the dot-com boom which will likely be the most competitive employment environment during our lifetimes.

b,

Bart went to speak at the Council meeting. The Council is dealing with it because citizens like Bart are doing their research, speaking at meetings about it, and bringing the general public’s attention to it through venues like here.

I think what we’ll be seeing in the coming years is a transformation of compensation in the public sector. The public sector still relies upon compensation models that the private sector abandoned for the very same reasons facing the public sector now.

b

The council has been dealing with it – rising employee pensions, salaries, and healthcare costs. I’m siding with Bart on this issue. Many local cities are cutting staffing because they’ve allowed compensation to accelerate while revenue and reserves were decreasing. If your concern is really to see continued good service from the city you should consider going before council to ask that they take this issue seriously. Otherwise the cost of good service will be increased taxes and fees. And if you are a current or retired employee you should be concerned about the sustainability of your pension and retiree healthcare. Valejo just cut their retiree healthcare from the Kaiser North rate of $1350 per month for retirees (employee 2+) to 300 per month.

Regarding my previous post to you, and your response, you are correct that there’s a free market for employees and they should be paid fairly. No argument from me on that point. However, there isn’t a free market for taxpayers to choose who provides their city services, and at what cost. The services are provided by the city and the labor costs/wages have continued to increase while revenue has decreased. The pension costs are only 7 months away from a very rapid escalation, healthcare costs are increasing by an average of over 7% per year, and salaries have increased during the great recession. That is what I call a triple whammy!

So, what do you have against looking at these issues, comparing public/private sector compensation including pension costs, and letting the chips fall where they may? It’s not about an attack on employees or the city’s management; it’s about the taxpayer’s right to question how the taxpayer dollars are being spent. It’s the city government’s responsibility and duty to be a good custodian of the taxpayer’s money and I don’t see any problem with asking them to justify their actions. I actually looked a t Dublin’s financials and there was something that stood out, something I don’t remember seeing before. On their city Org chart they listed “Residents” at the top of their hierarchy: Residents, City Council, and City Manager. I thought that was both cool and appropriate.

Taxpayers, and the city for that matter, should encourage a healthy dose of scrutiny. Cities up and down the state are getting the same questions. And yes, some cities haven’t been listening and taxpayers have had to rely on the initiative process. That doesn’t cost the city a single penny unless the authors gather the appropriate number of signatures. If that happens then will you consider the other side of the coin? I think Pleasanton councils, management, and employees have been doing a good job. But I also think they have dropped the ball on the pension issue, and other employee costs.

Just because things that made sense in 2002 doesn’t mean they make sense going forward. Given the state of the economy it might be the appropriate time to reevaluate past decisions.

Replies to several:
To always foot-in-mouth ‘Yet Another Teacher”. Nobody in my varied family has ever received company stock. First, many that you call private, are just that, PRIVATELY held companies, not on the stock market !
Sick and tired, in fact many in TP are anti-corporations.. and only support little companies. It is such a mixture of partially informed, that it is hard to refer to any group policies, other thank subsidies and regulations.
b- I’m not aware of any positions from state down to city public employees that require unusual mental dexterity…it’s NOT rocket science ! !
Bart, Keep you informed. The questions you pose, and steps you propose, and solutions you see, are right on !

Here is a link with the salaries for the Pleasanton-Livermore fire department:

http://www.contracostatimes.com/public-employee-salaries-results

The MAJORITY of these make well over $130K in compensation!!!!!
They employ 126 people, and only 7 (count them, 7!!) make less than $100K. Like $93K, $90K, $75K, $69K, $68K, $48K, and a temporary retiree that makes $27K. The retiree is probably getting a pension, and gets $27K for temp work!! Double dipping??? Nice job, IF you can get it.

The President of the United States makes $400K in salary, and we have people in the fire department making close to $200K.

Not So Sure- It is hard not to laugh to believe that you think a Volunteer Fire Department would work around these parts. Volunteer departments work in small rural areas that typically are not very busy. Additionally, I challenge you to locate any volunteer department that covers an area as expensive to live in as this Bay Area is. Do you really believe that people would “Volunteer” their time to work when many can barely make ends meet working 40 hour a week jobs? Pay attention and fully think things through before making such ignorant comments. You are the person who would be on this forum the very next day when the fire department wasn’t their fast enough to save your loved one. Having great service isn’t free.

Another Software Engineer- 130K!!!!! in compensation! Wow!!!! Instead of jumping to conclusions did you ever bother to ask any questions? Questions such as is this their base pay or was this including overtime? I would bet my house it included overtime. No Fireman makes a base pay of 130k. Your next question should have been why is their that much overtime to work? Could it be that the City of Pleasanton has chosen not to fill these vacancies? Instead, rather having current Fireman fill those vacancies? Could this method save the city money rather than hiring more Fireman with benefit, and training costs? I could give you all the answers. But would rather you spend some time to research them for yourself. Keep in mind those are two cities Fire Department in one. Do you think the City of Pleasanton is paying all of those salaries????

Some of you on here show your true ignorance.

Reminder for those who would like to get involved with a citizens group to motivate the City Council to address this issue, please send your contact information to:

ptownreform@gmail.com

I will continue to repeat that I value the services city employees provide to this community. My issue is not with the employees but an ill-planned entitlement program that is putting financial stress on the city.

City employees deserve to be fairly compensated for their contributions, but a retirement program that enables people to retire as young as 55 with million dollar plus retirements is over the top in my opinion and is not sustainable.

I also have a major issue with city employees not contributing to their retirement funds during a time when the cost of that benefit was sky rocketing. Even now only token contribution amounts are being discussed and won’t even cover all the portion of the employees’ portion. Contrast this with other cities where employees are not picking up 100% of their portion plus some of the cities’ portions.

You don’t need to worry about my retirement as it is coming from my own savings. I’ve learned to spend less than I earn.

Thank you Bart for all of your research.

Sadly, you are going to need a lot of luck working with this council about public sector contract reform. I saw the Fire dept. folks putting out signs for their candidates this last election, Hosterman, thorne and cook Kallio. Why were they supported? Because some of the other folks went public about public sector salaries were totally unsustainable and that they needed to start contributing their share. As I recall, Cindy McGovern said the unfunded liablities were $138K if medical and retirement entitlements were added together.

The Times newspaper backed Cindy, Thorne and Brown for reform, but the voters only put Thorne in office. With McGovern in office now, and Thorne re-elected, you just need 1 more vote to move this forward.

A good website is http://www.insidebayarea.com/public-employee-salaries. It appears the municipal salaries are very high for mid-managers and above. Take into consideration beyond the salary, overtime, little the department is already over-staffed, little if any paid by public employees toward health insurance coverage, and 0% is paid by employees into their pension fund whereas most private sector jobs pay out-of-pocket for premiums and of course social security. You can not compare public to private sector equity when public sector jobs are union protected and involves little or no risk like businesses take daily. It is the County and State workers on the front line who take care of social services programs that are underpaid, not the municipal workers who are a bulk of PERS retirement shortfall.

There is no typical age but I am pretty positive that it is well above 60 (and increasing due to the financial crisis impact) as it it with most industries except government employment.

It all comes down to the time when someone has saved enough money to retire. Remember the vast majority of private employees don’t have pensions and therefore must rely on savings/social security.

Remember the government has already raised the retirement age for social security and is in discussion about raising it again.

It has only been with government employees where the retirement age has gone down while life expectancy has gone up. Hence the public employee pension funding crisis.

Bart:

I want to thank you from the bottom of my heart for the yeoman service you are performing. I have been trying for several years to get comparable compensation levels for private and public sector jobs (Including retirement and medical benefits). They have stonewalled this. Jerry Thorne has been trying to get this for ever. Kay Ayala has been trying for the past decade. We have all become serfs working for the elite public sector workers. Let others worry about the Federal and State problems. Let us try to fix the city situation. They always do this in closed session in the dark hours. The city attorney got a boost in his final year compensation to boost his pension after messing up numerous legal issues that have cost the city millions. We need to all go to the next city council meeting on Dec.7th before they try this 2% for the next contract. We need to make retroactive changes as well. The council is powerless or do not have the backbone to fight the unions. The citizens have to do it. Make it a Pleasanton Tea Party.

Record – I thought I did previously respond to your fireman cancer point. Again, I reference CalPERs actuary information when determining differences between working groups and the general population. According to CalPERs there is no difference between life expectancies between firemen and general employees. You can look this up yourself on google.

While I respect and value what you do, I like to focus on facts regarding what price society should place on the value someone provides. The compensation of public employees, including firemen, is simply unsustainable. If you took an objective look at the numbers, you’d likely come to the same conclusion. Heck, Obama just placed a two-year freeze on federal employee salaries.

Let’s outline a likely scenario for a typical fireman. Let’s assume they started their career at $75K and retired at 55 after 30 years at $150K. The actuarial reality is that person is expected to live another 27 years. This means they worked for 30 and then get to earn 90% of their final salary for another 27 years. This means they really started out at an equivalent salary of approx. $210K and finished at a salary of $285K.

We as a society can’t afford this. Also, keep in mind that firemen pre this explosion of entitlement benefits and early retirement, earned much less and worked under more unsafe conditions due to lack of new technologies/techniques.

That’s interesting. I work with lots of Bay Area/Silicon Valley corporations and it is very rare to see a material number of workers over 55-60. In fact, these organizations are dominated by the 25-45 crowd. Most Silicon Valley types I know target ~55 for retirement and then maybe pick up some part-time consulting, philanthropy, etc. after that. In other words, pretty much the same as the government workers. Just without the stigma.

Many people here seem to stick with a Silicon Valley vs Public Sector comparison.

There are plenty of us in regular private sector jobs who do not retire under 60, 65 is the norm, and who do not get bonuses or much of a retirement contribution. My husband’s company gives 16% of what he contributes to his 401k. Of course it used to be more, but the economy has changed things. Salary has gone down significantly in recent years. I watched that show on TV where a consultant goes in to help unemployed families and it shocked me that even though as a family I thought we were doing OK, we’re not taking home much more than the unemployed.

Observation – I surely don’t want to undermine all the researched facts that I have posted on this blog with an incorrect generalization, so I appologize for that. I incorrectly assumed that since federal employee income grow has outstripped that of the general population these last couple of years, that their benefits increased too.

It would be nice if you could get all the others on this blog who have made mistatements to admit their mistakes. 😉

I wasn’t saying what is right or wrong. Merely observing what seems to be reality.

Is it fair that some tech workers can retire at 40 because they won the stock option lotto, while police officers and park maintainers would be required to pound the pavement until 65 or more? I suppose it depends on your reasons for choosing each of those careers.

It might be fun to cut all the public employees’ salaries to $20k/year and eliminate retirement benefits, just to see what happens. Since there are more people who want to work than there are jobs, I suppose there would be no consequence to doing that. I’m sure we could even get Not So Sure’s husband back to work.

To b:

If someone in tech wins the “lotto”, they are paying for their own retirement. It’s not my problem and I don’t resent it.

Many private sector workers (especially if you exclude bankers and tech) retire much, much later than the public sector.

The regular private sector workers are the people you should be talking to if you think that current public sector spending is justified. You can think as much as you like that the “rich folks” should pay. But in many minds, the public sector are now the “rich folks”. I had to laugh when there was an article talking about how $250k was a very low amount to make a year and the article referenced the income of two public sector workers to illustrate the point.

Most private sector workers have not won the lottery . . . do not get bonuses . . . have had their salaries reduced . . . pay a huge amount towards health insurance . . . do not have anywhere close to enough money to retire at 60 . . . their pension scheme – which they contribute a ton to – is not guaranteed to provide any specific level of income and subject to the whims of the stock market, bankers and the federal reserve (yes, I know to bail out the bankers, but that is another story!).

Is there a reason these “regular” private sector people should pay extra tax for public sector people to retire years earlier with escalating salaries, a guaranteed pension for life that the people involved barely contribute to?

And anyhow, Bart’s point is that even if we wanted to, we can’t afford to pay this anymore without bankrupting our town / county / state. If you look outside of our Pleasanton bubble, surely you can see that things are crumbling.

I’m curious where you think that because private sector jobs have crumbled, that everyone must suffer the same fate. I certainly did not hear this reaction when times were good. In fact, I watched as salaries, perks, bonuses, and spending was on the rise for so many people in this town. I don’t recall any great equalization at that time. I find it laughable “two cents” to hear you call public sector jobs- the rich people! I’m continuing to contribute to my retirement (although you like to say I don’t), I continue to work my second job as I have done for the past 10 years in order to live in this town, and I continue to save what ever I can for times like these.

With all the complaining, maybe you all made the wrong career choice, why aren’t you flocking to public sector service jobs? You all remind me of the great fable the Turtle and the Hare.

” . . . when times were good. In fact, I watched as salaries, perks, bonuses, and spending was on the rise for so many people in this town”

. . . including the public sector – as Bart and so many newspaper reports have so clearly outlined! The difference is that the private sector has cut back substantially and is exposed to huge risk.

And during this time, many jobs were outsourced – the working / middle class hasn’t benefited from the boom when it happened as many articles can show you. There are big problems here.

B

“And why is there such a stigma associated with retirement plan contriubutions relative to other compensation and benefits?”

– Because the pension plans are out of control.

The cost of the safety pension plan was originally set-up so that 25% of the required funding would come from employee & employer contributions, with the other 75% coming from investment returns. The original formula for the pension plan was 9% for the “employee share” and the “employer share” was 16%, with average investment returns of 7.75% making up the other 75%. Over the past decade CalPERS average rate of return was 3.3%, and most plans are only about 60% funded.

To help mitigate the impact of investment losses CalPERS has been increasing the contribution rate using a smoothing policy – a graduated rate increase. Actually, they only increase the employer/taxpayer rate while the employee rate remains unchanged, and in Pleasanton the city pays both the employee & employer contribution. The original 16% of payroll, or the employer contribution rate, has increased to 27.8% of payroll for Fire and 29.1% for police. Now CalPERS is forecasting that the employer contribution rate could increase by 55% or more over the next three years, although it is expected to increase over the next 5 years. For police that would put the employer contribution rate at 45.1% of payroll by July 1, 2013. When you add back the 9% of the employee contribution, because the city pays the employee contribution, then the city’s employee/employer contribution grows to 54.1% of payroll. In other words, for every 100K of police payroll the city will send CalPERS 54, 100 dollars, as opposed to the current $29,100. I’m expecting CalPERS to raise Pleasanton’s contribution rate by close to 7% this next July 1st.

There is a lot of discussion going about the sustainability of CalPERS expected 7.75% rate of return, or what I call the taxpayer guaranteed rate of return (great if you can get it, I guess). Here is a hypothetical for those interested. If an investment plan were considered fully funded at 1 million dollars, with a guaranteed rate of return of 7.75%, you would expect a return of $77,500 dollars, for a total plan value of $1,077,500, after one year. If you didn’t receive the full 7.75% you would expect the guarantor to make the investment whole.

If that same investment plan were only 60% funded, at $600,000 (meaning there is a 400K unfunded liability), what rate of return is required to generate that same 77,500 dollars, keeping in mind that earning 77,500 dollars doesn‘t do anything to address the unfunded liability? It is only the dollar amount required to keep the unfunded liability from growing. So the question is what rate of return is needed to earn 77,500 dollars on a $600,000 dollar investment, in one year?

The above scenario is a simplistic look at part of a larger, more complex issue. With CalPERS funding at about 60% of its obligations, I’m just trying to illustrate where the pension plans are in relation to the Eight-Ball.

All these costs add up.

Here’s an interesting article on the subject: “Group Touts New Pension Initiative”

“A pension reform organization has released a draft initiative plan for the 2012 ballot that would require public employees to pay half their retirement benefit costs, mandate defined contribution plans for new employees, significantly limit public pension benefits and require public employers to fully fund all pension and retiree medical benefit plans by 2020.”

http://foxandhoundsdaily.com/blog/steven-greenhut/8301-group-touts-new-pension-initiative

b

You said, “Thanks, Arnold. That’s all interesting and noteworthy. But you didn’t address my fundamental point–this is only one piece of a much larger and more complex puzzle.”

When did you make that point? You didn’t, at least not in the comments I responded to. When I said, “The above scenario is a simplistic look at part of a larger, more complex issue.”, and I was refering to other issues related to the taxpayer unfriendly organization known as CalPERS.

You go on to say, “That’s what I’m trying to get you to see–you’re narrowly focusing on a small piece of the puzzle, which is largely a 2008 problem that is already working itself out. You should be focusing on the whole puzzle–and what’s more likely to happen in 2011-13, not the consequences of what happened in 2008.”

Nonsense b, CalPERS issues began long before the market collapse of 2008-2009. The numerous problems of the beleagured pension fund run deep. It was CalPERS own Chief Actuary that called CalPERS pension plan unsustainable. Does that concern you at all? I’m guessing you can rationalize that too. Or maybe you consider “working it out” doubling the cost to the city/taxpayers. You do know that for that to happen while revenue remains flat will require reduced services, increased taxes, or more likely reduced services and increased taxes so a select few can retire at 50 or 55.

You never actually responded to my question, “what rate of return is needed to earn 77,500 dollars on a $600,000 dollar investment, in one year?”.

b wrote: “There are A LOT of people who take, and stick with, these thankless lower-paying jobs precisely because of the more generous retirement plans.”

And that’s why the pension spiking for higher-paid employees is so damaging to the future viability of the fund for the retirement of lower-paid employees. It limits society’s ability to offer the benefit of retirement income security for the so-called little guys. Pension reform doesn’t necessarily mean to do away with the pensions. That’s why people around the State are looking at doing something like limiting the level of incomes for pensions and offering defined contribution plans above that limit.

Another aspect not touched upon here is that CALPERS also funds retiree medical. Medical costs are only getting higher. That will eat more of the fund too.

I spent some time digging into CalPERS reports, and I think you guys are getting played here.

CalPERS holds massive amounts of real estate. In the year that just ended, they wrote down the portfolio by 37%, and still managed to pull off a nearly 12% overall return. That was after another large real estate write-down the prior year.

Bear in mind, these are generally high-quality real estate assets, that have simply lost a lot of book value the past couple years, along with everything else. CalPERS has marked down the assets as much as they can (you business types know how squishy and inexact this is) and can now come begging to public agencies for larger contributions.

The bet you’re taking here is that there’s going to be another substantial drop in asset values that will cause these lower returns to continue. Any further stabilization in the market, and 7% returns will be easy. Actual improvement in the economy from where we are will cause these values and the fund’s return to soar.

Meanwhile, they’ve caused a citizen revolt that will ultimately take the pressure off them to produce any significant investment returns.

Mark my words. You’re mocking me now, but you’re chasing a horse that left the barn two years ago. This will be a distant memory in another two years, regardless of whether you waste more tax money on another initiative

Bart, look. The bottom line is that I agree this is an issue worth exploring. The ENTIRE compensation package should be reviewed at least annually, to ensure both affordability and market competitiveness. That’s Management 101.

The problem I have here is the way you’re threatening to force this “reform” on the city one way or another. I think you’re well-intentioned. But we just re-elected our Mayor and two Councilmembers to a new term, and now we need to let them do their jobs.

You’ve presented a legitimate concern to them, and it sounds like they’re taking it seriously, which they should. If they come back and agree with you, something will be changed to ensure short-term affordability of these plans. But they also need to look at the big picture–weighing two years of poor real estate and stock market investment performance (a trend which seems to have reversing favorably), against their ability to recruit and retain high-quality employees who are on decades-long career tracks.

Overall, this initiative (local)/proposition (state) process is badly broken. While generally passed with good intentions, these initiatives/propositions tie the hands of our elected leaders, preventing them from looking at the big picture and fairly weighing tough alternatives.

One Bay Area city is having trouble retaining employees for more than a few years because their pension plan was “reformed” and is no longer competitive–people work there for a few years to gain some experience, then go elsewhere for their careers. Pleasanton citizens with good intentions blocked a local housing development with an initiative, and now the city has no real choice but to spend millions on one lawsuit after another. Our state legislators can’t balance the state budget because their hands are tied by so many well-intentioned citizen propositions that tell them what they can and cannot do.

By all means, ensure the Council takes this issue seriously. Thank you for your service to the community and your good intentions. But if they disagree with you and believe your proposal is short-sighted, please stop. Please don’t waste more taxpayer money passing an initiative that prevents the City from being able to weigh ALL the short- and long-term needs.

I think it is important to tell the mayor and council that they are on notice to get something done otherwise the citizens will take it into their own hands to make something happen is important otherwise they will do nothing. They need to act boldly and quickly otherwise put it on the ballot and let’s eliminate all of this pension pork.